Look through the list of recipients of the $8.6 trillion in bailout money committed thus far, and you'll find no true investments in the mix. Though you'll surely recognize these line items:
- Around $300 billion to guarantee Citigroup's
- $27 billion to guarantee Bear Stearns' assets for acquirer JPMorgan Chase
- $200 billion to the term asset-backed loan facility to encourage lenders like Bank of America
(NYSE:BAC), American Express (NYSE:AXP), and Capital One Financial (NYSE:COF)to loan more money to already debt-laden American consumers.
- $800 billion to shore up mortgage markets, including buying mortgage debt backed by Fannie Mae
(NYSE:FNM)and Freddie Mac (NYSE:FRE).
These are not investments -- they are economic shackles. At best, these bailouts simply mask the enormous debt problem facing our economy and do nothing to fix it; at worst, they magnify the problem and put the burden on future generations of Americans.
Bad businesses will eventually fail, no matter how much government money they receive. Let the free market sort them out. Instead of trying to fix the broken past, the best way to spend the bailout money is to make investments in the future, and that must begin with an investment in education -- specifically financial education.
Knowledge is king
As Thomas Jefferson wrote in 1786:
No other sure foundation can be devised for the preservation of freedom and happiness. ... Preach a crusade against ignorance; establish and improve the law for educating the common people. Let our countrymen know that the people alone can protect us against the evils [of misgovernment].
A properly educated public wouldn't need government to bail them out of bad mortgages or provide them with more credit. They would have known better than to put themselves in such precarious situations in the first place.
It was truly a lack of education that got us into this mess, and the country's financial aptitude has been on the decline for some time. A 2007 Federal Reserve survey showed that high school seniors, on average, correctly answered just 48% of personal finance and economics questions. That figure has fallen from a still-depressing 52% in 2006, and 57% in 1997.
Show me the money
American financial ignorance has been a known issue for some time, but it's been primarily addressed with too many words and not enough action -- much less sufficient financial support. In fact, during an April 2008 speech to the Jump$tart Coalition for Personal Financial Literacy, Fed Chairman Ben Bernanke himself argued:
Financial literacy and consumer education -- coupled with robust consumer protection -- makes the financial marketplace effective and efficient, and better equips consumers to make tough yet smart financial decisions. ... I believe more states should consider making personal finance a requirement for all students who seek a high school diploma. I am personally convinced that improving education is vital to the future of our economy and all its citizens, and I strongly believe that promoting financial literacy, in particular, must be a high priority.
Let's make it a high priority, Mr. Bernanke. State school budgets are already strapped, so you can't rely on them to take the initiative. With the entire Department of Education's 2008 budget at $62 billion, why not take another "mere" $62 billion from one of the defunct banks we're supporting, and instead make a serious investment in financial education for the people? There's no better time than now to take this action, and it's in our nation's long-term best interest to do so.
Even if your tax dollars aren't used to fund public financial education, our Foolanthropy 2008 campaign represents one small step toward making sure every young person in our country enters adulthood armed with a basic financial education. Help us raise money by posting on our discussion boards or making a CAPS pitch during the month of December (for every post or pitch this month, the Fool kicks in $0.02 to this year's Foolanthropy charity), or by donating money -- whatever the sum. Join us in taking the steps toward a successful financial future.
Todd Wenning would like to thank all the teachers out there for making a difference. He does not own shares of any company mentioned. JPMorgan Chase and Bank of America are Motley Fool Income Investor recommendations. American Express is a Motley Fool Inside Value selection. The Fool owns shares of American Express. The Fool is investors writing for investors.